Shining a Light on Climate Change Risk Faced by Companies

Shining a Light on Climate Change Risk Faced by Companies

Image CC licensed by Flickr user aprilzosia[email protected]/2334423846/

The Securities and Exchange Commission has issued revisions to Staff Legal Bulletin No. 14E (CF). Why do we care about an obscure SEC procedural document?

According to the RiskMetrics Group Blog, an earlier 2005 version of the document

"concluded that resolutions [about climate change risk] could be omitted under SEC Rule 14a-8 (i)(7) as ordinary business matters, not suitable for shareholder consideration, if they involve 'an internal assessment of the risks or liabilities that the company faces as a result of its operations that may adversely affect the environment or the public’s health.' "

In other words, shareholder resolutions seeking information about companies'  financial climate change risk did not have to be addressed by SEC regulated-corporations.

The brand spanking new Legal Bulletin 14E changes the metrics for determining when shareholder resolutions regarding climate change risk need to be included in SEC documents:

Henceforth, the bulletin says, in deciding when a company can omit a resolution, rather than focusing on whether a resolution relates to an evaluation of risk, the staff will instead focus on the underlying subject matter to which the risk pertains.

So, if a company has a large financial risk due to carbon-belching power plants or portfolios of resource sapping buildings, it is possible that shareholders will be able to call for an accounting of the risk to their investments. 

As Justice Louis Brandeis said, "Sunshine is the best disinfectant." 

By allowing shareholders to demand cliamte risk disclosure, companies may be more inclined to undertake risk management strategies -- like green building -- to ameliorate their risk.

Shari Shapiro, J.D., LEED AP, is an associate with Obermayer Rebmann Maxwell & Hippel LLP in Philadelphia. Shari heads the company's green building initiative. She also writes about green building and the law on her blog at, where this post originally appeared.

Image CC licensed by Flickr user aprilzosia.